Retail Pricing Question

[Breifne]

Hey, professional roasters. A quick question as we prepare to get rolling with our new roastery.

I've seen the general consensus is to price any given coffee at approximately three times the level paid by the roaster. If you buy a sack of green beans for $4.00 / lb., I suppose you'd factor in:

1) Weight loss
2) Packaging
3) Shipping cost

So, if packaging and cost to ship per pound costs $1.00 (just as an example), then you'd be at $5.00 per pound. Would you then charge $15 / lb. retail?

Or are any of you charging MORE in your retail sales than three times your own purchase price?

~ Ryan

 

[peterjschmidt]

I don't have much if any overhead, so I don't have to follow no stinkin' formula, and charge what I think the market will bear.

But if the green in the above example cost $4, wouldn't your cost for the roasted coffee be around $5/lb.? Oh, I see now, your $4/lb. includes items 1-3, yes?

Just because of the difference between how I can set my price and how you need to set yours, I don't think such a basic formula as 3x purchase price can be a one-size-fits-all. Your overhead and other costs have to factor in somehow.

 

[expat]

I like what Peter said -- forget the formula, figure out your costs, and charge what the market will bear. Because sometimes it won't bear your 3x formula and sometimes it will bear more. That has a lot to do with your marketing and the way you differentiate your coffee. Are you just another coffee? The low price guy (bad idea)? Or the Primo-Maximo-Supremo coffee? All that is going to have a bearing on your price. Ditto for packaging, promotion, distribution, etc.

One last thing, you title your thread 'Retail Pricing Question' so I guess that means you're selling through supermarkets, etc. If that's the case those guys will never stop trying to beat you down on price or try to get you to run a promotion (which you pay for), etc. You're a small roaster, not Nestle, so don't even go down that road. When they start telling you that you need to lower your price simply tell them 'actually, I was just thinking that I needed to raise my price.' A lot of grocery buyers get bonused on how much they get you to give back so they're always trying, not really caring much about you (they've got eight other guys trying to sell them coffee) but caring a lot about their bonus. Granted that isn't across the board behaviour but it is not uncommon.

Oh, one other thing, if you sign a contract with them make sure you DON'T agree to take any product back. Once you deliver it, it is their responsibility to sell it.

 

[Mr.Peaberry]

Food cost for restaurants is typically 25%...but this is for a full serve, dine-in establishment with all the associated overhead, labor, and "shrinkage". Even with this much margin, often the execution of the business plan & location, is what makes the difference between success and failure. Think of an all-you-can-eat buffet...they certainly skimp on margins and quality, but there are some chains making big money in this category. Ultimately, you need to be a very savvy negotiator as expat says, and don't get sucked into any situations that will ultimately interfere with your business model.

 

[almico]

I suppose you could just throw "3x cost" against the wall and see if it sticks. Or if you are serious about roasting as a business, you could do a detailed market analysis and see what coffee sells for in the venues where you intend to compete. Then see where your offering fits into the mix and what you offer to differentiate yourself.

 

[Breifne]

Thanks for the input, everyone.